Oil, energy prices, incentives discussed during energy chat
Guests on The Oklahoman’s monthly Energy Chat with reporters Adam Wilmoth and Jack Money had the future on their mind Tuesday.
They asked about where oil and natural gas prices were headed, and about where Oklahoma’s Legislature might come down as future tax incentives are debated for wind and for oil and natural gas. Here’s a transcript, edited for clarity and space.
Q. Where do you see oil prices for rest of year?
Wilmoth: I’m seeing more optimism throughout the oil patch than I’ve seen in several years. OPEC and Russia still are artificially holding supplies down to keep prices up, and that alliance has worked far better than most thought it would. At the same time, global demand continues to grow. How will U.S. producers respond? So far, they have said they are more focused on working within cash flows than increasing production. It’s a new mindset, and it could have big effects for production and share prices. At $63 oil, there likely will be a modest increase in drilling.
Q. Are our biggest companies here in Oklahoma City (Chesapeake and Devon) stable at this point?
Wilmoth: We’ll find out more next month, but both seem to be doing well. Like most independent producers, they have focused on the best of their areas, spending little over the past three years on exploration. It will be interesting to see what companies do with their excess revenue. The old oil and gas industry would use every penny to increase drilling and production. But in recent months, executives have highlighted a focus on growing smarter, which apparently means increasing efficiency and paying down debt. Companies have cut costs with an aim to be profitable at oil prices near $40, so at today’s price of $63, they should be looking much better.
Q. Why shouldn’t wind energy get government subsidies? Oil and gas have enjoyed these for generations.
Wilmoth: It is always difficult to dig into subsidies, as it is an important, complicated topic. Is a lowered tax rate a government handout or allowing an individual or company to use their own money for further investment? Is a Department of Energy grant to a university to study some oil-field technology a subsidy to the industry? How do you measure an investment by the U.S. government that leads to new jobs and revenue? These are all important economic issues, but they are also extremely political.
Q. When will the Mississippi Lime area become viable again?
Wilmoth: Not anytime soon. The biggest problem with the Mississippi Lime is that it contains vast quantities of ancient saltwater along with the oil and natural gas. Nearly all oil wells in Oklahoma produce some water, but the Mississippi Lime is saturated with it. Dealing with that kind of water is complicated and expensive even under the best circumstances.
SandRidge Energy spent more than $1 billion developing a complex system to transport and dispose of that water. That system now is largely unused because it was connected with the state’s earthquake swarm that peaked as Mississippi Lime drilling picked up. The Oklahoma Corporation Commission closed many of the disposal wells in the area and cut disposal limits on most of the others.
Q. Are there any rooftop solar panel projects going on in Oklahoma & Oklahoma City?
Wilmoth: Utilities have experimented with solar. OG&E has two solar farms and the Oklahoma Electric Cooperative has a small project in Norman. There has been resistance to home solar both in Oklahoma and throughout much of the country. The utilities say they are not opposed to the technology, but adding it needs to be integrated in a way that protects workers and other consumers, such as keeping power from flowing into downed or damaged lines. There also has been a struggle as to how much solar customers should get credited for excess power production. Some customers and solar proponents see the challenges as a way for the utilities to protect their monopoly on the power grid.
Money: Homeowners who use solar power can see their electricity costs reduced to zero during a normal billing cycle if the system is wired to add power back into the grid and if it produces more power for the utility than the home uses. Still, it’s a big investment. If it cost the average consumer $400 a month to pay for their electricity, there probably would be more of a market for it.
Q. You can’t build a house in Palo Alto, California, without a home electric charging station. You can’t build a house in Palmdale, California, without solar panels on them. When will Oklahoma catch up?
Money: Probably when California annexes Oklahoma.